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Sticker Shock: Car Buyers Miss Haggling Ritual

Mark R. Smith was following the hottest trend in the auto industry two years ago when he plastered low, fixed prices on the cars and trucks at his family's Ford dealership here and banned haggling by his sales staff.

But the result was not what the auto executives in Detroit or the high-priced dealership consultants had predicted. For every customer who came in eager to dispense with the traditional, time-consuming and often distasteful dickering over the sticker price, there were four or five more who insisted on trying to knock several hundred dollars off the price. When the salespeople refused to budge, the customers stalked off.

So Mr. Smith abandoned fixed prices on his new cars last winter. The dickering resumed and the dealership quickly captured a bigger share of sales in the Kansas City market. "They've improved enough that we're not thinking of going back" to fixed prices, Mr. Smith said.

One of the most trumpeted trends in automobile retailing in years, the spread of fixed-price, "no haggle" new-car dealerships during the early 1990's, is now quietly in decline, according to dealers, auto makers and consultants. Despite all the complaints from car buyers about haggling with dealers, it turns out that many people actually enjoy bargaining and fear that they will pay too much if they don't do so. Dealers, on the other hand, found that setting fixed prices backfired when rival dealers nearby ruthlessly undercut them to capture sales.

"A bunch of us thought people would be willing to pay an extra hundred bucks" for the convenience of fixed prices, said John B. T. Campbell, a Saturn dealer in Santa Ana, Calif., who recently sold his fixed-price Ford and Mazda dealerships. "We found that didn't prove to be the case."

Fixed-price dealers do slightly better in rural areas, where there are few dealers nearby to undercut them. The consensus of Chrysler dealers, said Robert J. Eaton, the chairman and chief executive of the Chrysler Corporation, is that "one price works better when you don't have dealerships selling the same product quite close" together.

Close to 2,000 of the 23,000 new-car dealerships in the United States had one-price strategies in 1994, but only 1,000 to 1,200 still do, according to Mark Rikess, a consultant based in Los Angeles who works with fixed-price dealerships. Surveys by the Dohring Company, a market research company in Glendale, Calif., have found that the proportion of Americans preferring dealers who negotiate prices has climbed sharply over the last three years.

"Automotive consumers need to feel that they get a good deal when they purchase a vehicle, and, for most, the only way they feel that they can get a good deal is through negotiation," a new report by Dohring concludes. "Thus, the trend is toward more buyers preferring to negotiate their vehicle purchases and, while one-price selling will likely not disappear, it will remain the preference of a decreasing minority of car buyers."

A surprising number of customers at dealerships here actually say that they do not trust no-dicker stickers. "I'd much rather negotiate -- I feel like I'd get a better deal," Marilyn A. Murdock said as she shopped recently at Platte City Ford, just north of Kansas City, for a replacement for her 1985 Cadillac Fleetwood. "I need a low-end car; I don't want to pay a lot of money."

Though Saturn, a division of the General Motors Corporation, still requires fixed-price selling by all of its dealers, the withering of the trend at other car lines has disappointed some auto executives. Auto makers are barred by law from owning dealerships, and the business practices at some traditional dealerships have long dismayed auto executives, who fear that customers with bad experiences will go to another company for their next car or truck.

John F. Smith Jr., G.M.'s chairman and chief executive, predicted in early 1994 that fixed-price dealers would bring credibility to the industry. "Right now, the pricing can be all over the lot, low price to high price," he said at the time. "The customer's uncertain and can be scared by the process."

But Chevrolet, G.M.'s biggest car line, has found that many dealers tried fixed prices for only a few weeks before switching back. Even among dealers who tried fixed prices for six months, considered the minimum period necessary for a serious test, at least half have switched back, said Ronald F. Sobrero, Chevrolet's general sales and service manager.

G.M. is now pinning its hopes on what it calls value pricing, which involves heavily advertised vehicles laden with popular option packages that are offered at discounts. The discount shaves the profit a dealer can expect on a car in return for the promise of greater sales. While the slimmer margin leaves less room to dicker, dealers and shoppers are free to haggle on a final price.

Dealers who engage in fixed-price selling, on the other hand, set their prices below the recommended prices from the manufacturers. The size of the discount depends on the popularity of the model, and no bargaining is allowed.

Some advocates of fixed-price selling contend that other trends in auto retailing are making it less important. A fifth of all new cars are being leased, and many customers do not try to bargain on lease rates even though it may be possible. Car buying services are negotiating prices for many customers, taking away some of the stress of the process. And a growing number of car buyers are checking pricing guides for information to determine how much a dealer paid for a car, limiting the dealer's ability to charge a large markup.

"I have to believe the trend is toward a less negotiated deal," with a narrower range of prices that dealers quote for the same car, said Doris Ehlers, a partner at J. D. Power & Associates, the consulting firm, which publishes reports on car quality.

Mr. Rikess, the consultant to fixed-price dealers, said that set prices might come back into fashion if auto makers promoted the idea or if a sales slump left many dealers willing to experiment again. Indeed, while "no haggle" pricing had been around for years, it spread during the 1991-92 sales downturn.

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But too many dealers underestimated the difficulty of abandoning negotiated prices, Mr. Rikess said. The move requires a completely new or retrained staff that is willing to shift its energies to wooing customers with detailed explanations of the features of new cars and trucks instead of haggling over prices, he said.

The decision by Mr. Smith, the Ford dealer here, to switch back to negotiated prices on new cars "just typifies how difficult it is" to make fixed prices stick, Mr. Rikess said, adding, "It's like if J. C. Penney got up one morning and tried to be Nordstrom."

True fixed-price dealerships are dwindling, particularly in cities, where they compete with dealers willing to negotiate the price of the same car, said George E. Hoffer, an economist at Virginia Commonwealth University who specializes in auto dealerships.

The negotiated-price dealers can charge high prices to unsophisticated buyers -- "hitting a home run," in dealer parlance -- while cutting prices to the bone for aggressive bargainers who compare prices at several dealerships. Fixed-price dealers try to maintain their profit margins by charging roughly the average of what the unsophisticated buyers and the aggressive bargainers pay.

The problem is that aggressive buyers often scribble down the prices at fixed-price dealerships and then wangle slightly better deals elsewhere. So the fixed-price dealers are stuck with selling cars to people who are too busy to shop widely and to unsophisticated buyers who might have been willing to pay more.

John B. Cates, the general manager of seven fixed-price dealerships in central Virginia, said that competing dealers had made a habit of driving by his dealerships at night and copying down the prices visible on the windshields, so as to undercut them consistently by $100 or so. The dealerships had to stop posting the prices as a result, he said, choosing instead to give sales agents a list of fixed prices that customers must request one at a time.

Buyers at Mr. Cates's dealerships pay slightly more, on average, than buyers at traditional dealerships. Mr. Cates said he had tried to make up the difference by improving the quality of his dealerships' warranties and service work and by emphasizing the ease of buying a car or truck at fixed prices.

"You end up with the people who value their time, and the service after the sale, over a couple hundred dollars," Mr. Cates said. Affluent buyers of expensive cars are among the few people who tell market researchers that fixed-price dealerships are clearly preferable, apparently because of a willingness to spend more money to avoid the hassles of negotiating with traditional dealers.

But over all, the Dohring Company found that 89 percent of car buyers heading for fixed-price dealers planned to take the quoted prices to negotiated-price dealers in the hope of striking a better deal.

Fixed-price transactions remain relatively popular for used cars. New entrants in the used-car market, like the Car Max chain, a unit of Circuit City Stores Inc., have generally adopted fixed-price sales policies. And even some dealers who have abandoned fixed prices for new cars, like Mr. Smith, the Ford dealer, have kept them for used cars.

The difference is that customers cannot easily take a price quote from a fixed-price used-car dealership and go to a traditional dealer for a better bargain, because no two used cars are exactly alike. "The cars are different; the mileage varies," Mr. Smith said.

Some dealers say fixed-price selling still has several advantages, even for new cars: Training and personnel costs are lower, as are advertising expenses.

Traditional dealerships require larger staffs to handle the hours of dickering with customers, Mr. Campbell, the Saturn dealer, said. And the hard bargainers who work in such dealerships also tend to be less willing to stay in one job for a long time, so that dealers are constantly having to pay for the training of new salespeople.

But for now, the surge of interest several years ago in fixed-price selling seems to have fizzled. Still, a few fixed-price dealers, like Daniel F. Ladd at Courtesy Chevrolet here, say that the advertisements they ran when they switched to fixed prices may make it hard for them to go back to traditional negotiations.